Testimony of Eric Schmidt, Executive Chairman, Google Inc.
`Before the Senate Committee on the Judiciary
`Subcommittee on Antitrust, Competition Policy, and Consumer Rights
`
`September 21, 2011
`
`Chairman Kohl, Ranking Member Lee, and members of the Subcommittee.
`
`Thank you for inviting me to testify before you today. I'm Eric Schmidt and I currently serve as tl1e
`Executive Chairman of Google Inc. I am responsible for the external matters of Google including
`building partnerships and broader business relationships, goverrunent outreach, and technology
`thought leadership. I also advise Google's Chief Executive O fficer, Larry Page, and senior Google
`leadership on business and policr issues.
`
`From 2001 until earlier this year, I served as Google's Chief Executive Officer, overseeing the
`company's tecl11ucal and business strategy alongside Google's founders Sergey Bri.n and Larry Page.
`Prior to joining Google, I was tl1e Chairman of tl1e Board and Clue£ Executive Officer of Novell
`and before tl1en fue CluefTechnology Officer at Sun Iviicrosystems.
`
`As a technology veteran of some 30 years, I look forward to talking to you today about ilie dynamic
`environment in which Google competes and fue new and innovative choices tl1at we are bringing to
`consumers to help improve fueir access to information and ultimately hel~ fuem live better lives.
`
`At Google, we've always focused on putting consumers - our users - first. For example, we aim to
`provide relevant answers as quickly as possible, and our product innovation and engineering talent
`deliver results that we believe users like, in a world where ilie competition is only one click away.
`
`W.ie believe iliat iliis focus on serving consumers has not just helped Google succeed but has also led
`us to create products and services iliat help oilier businesses furive. Just in 2010 Google Search and
`our advertising products helped generate $64 billion in econonnc activity for hundreds of tl10usands
`of small businesses throughout the United States. We are proud of the work iliat we do wifu small
`businesses and of fue fact fuat we help them connect with customers and partners around fue world
`in a way not possible just a decade ago.
`
`I'll add that, according to independent research commissioned by Google, 63 percent of America's
`small businesses do not have a website or online presence. So tl1ere's still a lot tl1at Google and
`others can do to help small businesses get on the web and thereby connect ·with ilie world. That's
`why we've started an initiative to help small businesses get online. We've partnered witl1 Intuit and
`dozens of local organizations to offer local businesses free web sites and tips on how to grow ilieir
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`online presence. To date, we have helped thousands of businesses begin the process of building an
`online presence at events around the country, and we’ll continue to do so in the months to come.
`
`In my written testimony I would like to focus on three key issues relating to Google and how we
`compete in the digital world:
`
`
`● First, I’ll describe the tremendously competitive and dynamic space in which we operate.
`
` A
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` Brief History of Google and Search
`
`
`As hard as it may be to believe, Google is only 13 years old. When I started with Google in 2001, I
`was employee number 223. Today, Google employs thousands of people in the United States, in
`California, New York, Texas, Wisconsin, and points in between.
`
`In 1998, the year Google was incorporated, Yahoo!, which had hundreds of millions of users, was
`declared the winner of the “search engine wars” – it got twice as many visitors as its nearest
`competitor and had “eviscerated the competition.”
`
`Nevertheless, Google’s founders, Stanford graduate students Larry Page and Sergey Brin, believed
`they could build a better mousetrap, and they set out to do so in their dorm room. Over time, they
`overcame naysayers who thought Yahoo! had permanently won the competition for the best search
`engine.
`
`Google’s entry into search was based on a major innovation: the PageRank system for using web
`links to tap into the “wisdom of the users” to identify the most relevant websites for any given
`query. This represented a major advance on Yahoo!, which was offering “categories,” and other
`search engines, which typically only used the number of times a keyword appeared on a page to rank
`websites. Many sites at the time, including Yahoo!, allowed advertisers to pay to be included in
`search results without any indication to consumers that those results were paid. Google never
`engaged in this practice and instead focused on improving its search results to serve users, with the
`result that in 2004 Google passed Yahoo! in the number of active U.S. users.
`
`Despite the major innovations in search since 1998, the underlying principles of how search works
`remain the same. A search engine’s software “crawls” pages available on the Internet and catalogues
`them. When a consumer enters search terms, those terms are processed by the search engine’s
`mathematical algorithms, which determine the probability that any given webpage will be responsive
`to the search. The user then receives results that are rank-ordered based on the search engine’s
`judgment of the likelihood that each result matches what the user was seeking in entering the search
`terms. This process necessarily depends on multiple variables and constant refinement.
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`● Second, I’ll describe the business principles that guide us and that we know will stand up to
`scrutiny.
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`● Finally, I will touch on the Federal Trade Commission’s investigation and our view that such
`a process should be focused and fair.
`
`
`Before I discuss these key issues, though, I’ll provide you with a brief history of Google and search.
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`From the start, Google has constantly refined its search algorithm, which now considers over 200
`factors in assessing site quality and relevance. When a user types a query into Google Search,
`Google’s proprietary technology analyzes these signals to provide a determination as to what the
`user is looking for. Google uses this ever-improving technology to organize information, rank sites,
`and present results to users. Google’s search results are ultimately a scientific opinion as to what
`information users will find most useful.
`
`In keeping with our focus on quality and delivering the most relevant results for consumers, Google
`is constantly experimenting with new innovations in presenting information. Potential refinements
`to the algorithm go through a rigorous testing process, from conception to initial testing in Google’s
`internal “sandbox” to focused testing to final approval. Consumer testing is key to the algorithm
`refining process, and Google uses both human reviewers and samples of real search traffic in order
`to measure whether a proposed algorithm change improves the user experience or not.
`
`To give you a sense of the scale of the changes that Google considers, in 2010 we conducted 13,311
`precision evaluations to see whether proposed algorithm changes improved the quality of its search
`results, 8,157 side-by-side experiments where it presented two sets of search results to a panel of
`human testers and had the evaluators rank which set of results was better, and 2,800 click
`evaluations to see how a small sample of real-life Google users responded to the change. Ultimately,
`the process resulted in 516 changes that were determined to be useful to users based on the data
`and, therefore, were made to Google’s algorithm. Most of these changes are imperceptible to users
`and affect a very small percentage of websites, but each one of them is implemented only if we
`believe the change will benefit our users.
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`The Dynamic and Competitive Internet Space
`
`One of the main drivers of Google’s constant innovation is the fact that we face an extremely
`competitive landscape in which consumers have a multitude of options to access information. If we
`want consumers to keep coming back to Google, we have to give them the best possible experience.
`And that pushes us to keep putting consumers first.
`
`Google faces competition from numerous sources including other general search engines (such as
`Microsoft’s Bing, Yahoo!, and Blekko); specialized search sites, including travel sites (like Expedia
`and Travelocity), restaurant reviews (like Yelp), and shopping sites (like Amazon and eBay); social
`media sites (like Facebook); and mobile applications beyond count, just to name a few.
`
`For example, let’s say you’re looking for a local restaurant. You might search on Google for “local
`restaurant,” but increasingly people are going on to Facebook and Twitter to ask their friends for
`restaurant recommendations. Or, you might use the Yelp mobile application on your iPhone or
`Android phone to find restaurants near your location. More than ever before we’re competing
`vigorously against each of these other ways for users to access information.
`
`Consumers have a truly vast array of options – some search and some not – from which to access
`information. Well-known shopping sites like Amazon, Wal-Mart, and eBay are essentially search
`engines that focus on product search and provide customers with an opportunity to buy a good at
`the end of their search. In this category, they have been extremely successful. For example, eBay
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`handled more than 2 billion U.S. searches in the third quarter of 2010, and Amazon saw 847 million
`searches during the same period, while Google handled only 226 million product searches during
`that quarter. Among these three companies eBay had 65 percent of product searches for the period
`while Google had just seven percent.
`
`The same holds true for popular travel search sites like Kayak, Priceline, and Expedia. Students
`looking for encyclopedia-like entries on different topics often go directly to sites like Wikipedia and
`About.com. Patients searching for medical information often go directly to sites such as WebMD
`and eHealth. For current events, news-seekers can visit the websites of major publications like The
`New York Times, The Wall Street Journal, or The Washington Post. And all of these websites have
`corresponding apps to make them even more readily accessible on mobile devices.
`
`Among major search engines, Microsoft’s Bing has continued to gain in popularity, perhaps because
`it comes pre-installed as the search default on over 70 percent of new computers sold. Microsoft’s
`Bing is the exclusive search provider for Yahoo! and Facebook. Microsoft recently signed a deal for
`Bing to power English language search on the fast-rising Chinese search engine Baidu, which Baidu
`has acknowledged will help it become more competitive in markets outside of China. In addition to
`Internet Explorer, Microsoft has integrated Bing into its popular gaming console, the Xbox 360,
`which it is in talks with cable companies to convert into the set-top box of the future. Microsoft’s
`Bing launched in June 2009 and has grown so rapidly that some commentators have speculated that
`it could overtake Google as early as 2012.
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`And there’s the most popular website on the Internet, by an “enormous margin”: Facebook.
`Facebook and similar sites have extensive search and information functions. Facebook Questions,
`for example, allows users to determine the best pizza restaurant in Washington, DC or the best
`movies of the 1970s. Consumers, particularly young ones, increasingly are turning to their online
`friends to find out what to wear, where to eat, and what to watch. And because of its exclusive
`search arrangement with Microsoft’s Bing, Facebook and Bing can harness the power of search
`algorithms and a customer’s social graph to answer a query. This is a tremendous competitive
`advantage.
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`Most importantly, all of these options for obtaining information can be accessed without ever using
`Google.
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`From an advertising perspective, Google’s search advertising tools compete for ad dollars every day
`against other forms of advertising including TV, radio, newspapers, magazines, direct mail, and
`online banner ads. Our advertising system is based on an auction where advertisers bid what they’re
`willing to pay, so advertisers set their own prices and can easily assess the return on their advertising
`investment. Advertisers know that they have other options and they can and do turn off their
`Google ad campaigns whenever they want.
`
`Google’s success despite strong competition is based on its persistent focus on satisfying consumers
`– getting them to the answers they want quickly and accurately. Keeping up requires constant
`investment and innovation, and if Google fails in this effort users can and will switch. The cost of
`going elsewhere is zero, and users can and do use other sources to find the information they want.
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`Our Business Principles
`
`These are the principles that have guided us from the beginning:
`
`Do what’s best for the user
`
`We make hundreds of changes to our algorithms every year to improve consumers’ search
`experience. Not every website can come out at the top of the page, or even appear on the first page
`of our search results. That’s why our search rankings and the format of our results are designed to
`give users the most useful answer.
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`Provide the most relevant answers as quickly as possible
`
`Today, when a consumer types “weather in Madison” or “how many feet in a mile” into our search
`box, you get the answers directly – often before you hit “enter.” Sometimes the most useful answer
`to a query is a link to website, but other times it might be a map, video, flight time, mathematical
`equation, quick fact, or shopping result.
`
`All search engines – including Microsoft’s Bing and Yahoo! – have been working to provide new
`forms of answers for users, beyond the traditional “ten blue links.” In fact, according to an October
`2010 study published by Comscore, Bing contained these “rich results” on their results pages 54
`percent of the time, while Google only provided rich results 33 percent of the time.
`
`Advertisements offer useful information, too, which is why we also work hard to ensure that our ads
`are relevant to consumers. Our ad systems ensure that the ads users see next to their search results
`aren’t just from the highest bidder, but also reflect the relevance of that ad to the user’s query.
`
`Label advertisements clearly
`
`Google was one of the first search engines to clearly distinguish advertisements from our organic
`search results, and when the FTC issued guidelines in 2002 to search engines about ad labeling,
`Google already met the recommended guidelines. As we experiment with new ad formats and new
`types of content (such as hotel and flight booking ads), we will continue to be transparent about
`what is an ad and what isn’t.
`
`Be transparent
`
`We share more information about how our rankings work than any other search engine, through our
`Webmaster Central site, blog, diagnostic tools, support forum, and video instruction on YouTube.
`We recently introduced an option in our support center for webmasters to contact Google privately.
`Through our Webmaster Help channel on YouTube, we provide more than 400 videos to help
`websites understand our rankings and how to improve their sites.
`
`We also give advertisers detailed information about the ad auction – including their ad quality score,
`our “bid simulator” to help them estimate their ad performance, and tips to improve their ad quality
`scores.
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`We’ve recently introduced even more transparency efforts, including announcing major changes to
`our algorithm, providing more notice when a website is demoted due to spam violations, and giving
`advertisers new information about ads that break our rules.
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`Loyalty, not lock-in
`
`As much as we would like them to stay with Google, if consumers don’t like the answer that Google
`Search provides, they can switch to another search engine with just one click. And we make it easy
`to leave our other services too. We have a team of engineers – nicknamed the “Data Liberation
`Front” – whose only goal is to help our users move their data in and out of Google products.
`
`We want consumers to stay with us not because they’re locked in, but because we’re innovating and
`making our products better. For example, if a user wants to switch from Gmail to Yahoo! Mail or
`Microsoft’s Hotmail, we make it easy for her to export contacts and messages easily and for free. If
`a user wants to leave Google+, our social networking service, we provide a tool called Google
`Takeout that lets users download all their posts, contacts, and photos. We do this for dozens of
`Google products – Maps, Voice, YouTube, Calendar, Finance, etc. – all listed on dataliberation.org.
`And we make sure the files that consumers take out are actually useful; they’re in flexible formats a
`user can read or upload into a competing service.
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`Our “loyalty, not lock-in” approach is good for our users and also a smart long-term business
`strategy. Would you eat at a restaurant where they lock the doors behind you when you sit down to
`eat? Of course not. We think it’s smarter to leave the door open all the time. That’s how we get
`rapid, candid feedback on what’s good and what’s not. It spurs us to innovate faster and build
`better products. And that freedom makes for happier, more loyal customers.
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`Be open, not closed
`
`When we think about the meaning of open, we think about open technology, which includes open
`source software (meaning we release and actively support code that helps grow the Internet) and
`open standards (meaning we adhere to and help develop accepted standards) that improve the entire
`Internet.
`
`At Google we believe that open is better than closed. “Open” means developing an open
`marketplace like the Android Market and the Chrome Web Store, where any developer can submit
`her applications for the world to try. “Open” means extending our products through application
`programming interfaces – APIs – so developers can build on top of these unique tools, helping
`them create great applications that would be practically impossible to develop otherwise.
`
`“Open” also means supporting features that have been approved by formal standards bodies, and, if
`none exist, working to create standards that improve the entire ecosystem. And “open” means
`releasing the source code to numerous projects that were developed by Google so that third parties
`can utilize these technologies to build their own products without having to reinvent the wheel,
`thereby speeding up the innovation cycle and providing consumers with even more choices.
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`Open sourcing software has real benefits in the marketplace, as competing browsers like Rockmelt
`and Flock have already been developed using the Chrome code base. Similarly, rather than having
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`to build their own operating systems, companies can and do use Android, as a full-fledged operating
`system, to power many different types of devices. In fact Android ‘s openness allows anyone to take
`it and develop it independently – Amazon reportedly is doing this with a tablet expected to go on
`sale this fall and others have too. Android’s openness has helped make mobile computing
`competitive by allowing the introduction of lower-priced smartphones and pushing other companies
`to innovate and improve their products – all resulting in better phones for less.
`
`The Federal Trade Commission’s Investigation
`
`In June of this year, Google received Civil Investigative Demands from the Federal Trade
`Commission regarding certain aspects of our business practices. While no company would request
`such a government investigation, we are confident that our business practices will stand up to
`scrutiny.
`
`We are fully cooperating with the FTC’s investigation, and we hope that it will be conducted in a
`focused and fair manner so that we can continue creating jobs and building products that delight our
`users.
`
`We know that several companies have complaints with Google, which they may have raised with
`government regulators here and abroad. In our experience, most of these complaints come from
`websites that don’t like where their sites rank on Google’s search results page or argue that in
`providing better answers like maps, shopping, or local results, we are hurting individual sites.
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`When you hear these complaints, I’d urge you to keep two things in mind.
`
`First, we built search for users, not websites, and no matter what we do, there will always be some
`websites unhappy with where they rank. Search is subjective, and there’s no “correct” set of search
`results. Our scientific process is designed to provide the answers that consumers will find most
`useful.
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`Second, unlike technologies of the past, the great thing about the fundamental openness of the
`Internet is that, if consumers don’t like what one website is providing them, they can switch to
`another website with just one click. Using Google is a choice (and a free one), and there are no
`barriers to consumers navigating to www.kayak.com, www.nextag.com, www.bing.com,
`www.yelp.com, www.expedia.com, or any other website.
`
` am not a lawyer, but I take comfort from the fact that every decided antitrust suit that has been
`brought against Google regarding our search results has been dismissed. As recently as last month,
`an Ohio state court dismissed a private antitrust suit brought against Google. I believe that this
`demonstrates that our business principles and, in particular, Google’s focus on putting consumers
`first, are also the same values that are behind the antitrust laws.
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`That does not mean that we do everything perfectly. The fact that we made over 500 changes to the
`algorithm last year is an indication that we are constantly refining the way that we organize and
`display information. And, like any good business, we are always happy to hear criticisms and
`concerns from consumers so that we can continue to improve.
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`Conclusion
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`Chairman Kohl, Ranking Member Lee, and members of the Subcommittee, thank you for inviting
`me to testify today.
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`At Google we recognize that with success comes scrutiny. By investing smartly, hiring extremely
`talented engineers, and working very, very hard (and with some good luck), Google has been blessed
`with a great deal of success. But given the rapid pace of change in the technology industry, we take
`nothing for granted.
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` look forward to answering questions you might have about our efforts, and Google looks forward
`to working with members of the Subcommittee and others to ensure vibrant and consumer-focused
`competition on the Internet.
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